1. Compare the theoretical price with the current market price and explain the reasons behind the differences observed. Which stock should the firm sell to arrange the finance and why?

Old Equipment New Equipment Current book value $400,000 Current market value $600,000 Acquisition cost $1,000,000 Remaining life (years) 10 Life (years) 10 Associated annual sales $300,000 Associated annual sales $450,000 Associated operating expenses $120,000 Associated operating expenses $150,000 Annual depreciation $40,000 Annual depreciation $100,000 Accounting salvage value $0 Accounting salvage value $0 Expected salvage value $100,000 Expected salvage value $200,000 Old Equipment New Equipment Current book value $400,000 Current market value $600,000 Acquisition cost $1,000,000 Remaining life (years) 10 Life (years) 10 Associated annual sales $300,000 Associated annual sales $450,000 Associated operating expenses $120,000 Associated operating expenses $150,000 Annual depreciation $40,000 Annual depreciation $100,000 Accounting salvage value $0 Accounting salvage value $0 Expected salvage value $100,000 Expected salvage value $200,000